The Great Risk Shift: The New Economic Insecurity and the Decline of the American Dream [Paperback]

Jacob S. Hacker (Author)

Book Description

Publication Date: January 17, 2008 | ISBN-10: 0195335341 | ISBN-13: 978-0195335347 | Edition: Rev Upd

America's leaders say the economy is strong and getting stronger. But the safety net that once protected us is fast unraveling. With retirement plans in growing jeopardy while health coverage erodes, more and more economic risk is shifting from government and business onto the fragile shoulders of the American family.

In The Great Risk Shift, Jacob S. Hacker lays bare this unsettling new economic climate, showing how it has come about, what it is doing to our families, and how we can fight back. Behind this shift, he contends, is the Personal Responsibility Crusade, eagerly embraced by corporate leaders and Republican politicians who speak of a nirvana of economic empowerment, an "ownership society" in which Americans are free to choose. But as Hacker reveals, the result has been quite different: a harsh new world of economic insecurity, in which far too many Americans are free to lose.

The book documents how two great pillars of economic security--the family and the workplace--guarantee far less financial stability than they once did. The final leg of economic support--the public and private benefits that workers and families get when economic disaster strikes--has dangerously eroded as political leaders and corporations increasingly cut back protections of our health care, our income security, and our retirement pensions.

Blending powerful human stories, big-picture analysis, and compelling ideas for reform, this remarkable volume will hit a nerve, serving as a rallying point in the vital struggle for economic security in an increasingly uncertain world.

Editorial Reviews

Review

"Jacob Hacker, a Yale University political scientist, has emerged as an incisive voice on issues relating to retirement security and income volatility."--AARP Bulletin

"Jacob Hacker's research on the uneven state of the American safety net has made the young Yale University political scientist a top idea merchant to Democratic think tanks."--Business Week

"Thoughtful Democrats like Clinton aide Gene Sperling and Yale professor Jacob Hacker have argued that Americans, even amid prosperity, are increasingly insecure in our globalized economy and wary of downside risks if they have to change jobs or learn new skills."--Michael Barone, Washington Times

"Hacker's biggest idea to combat volatility: Smooth out the financial ups and downs through 'universal insurance' that would temporarily make up income shortfalls from job losses. Don't be surprised to see a variation on this and other Hacker ideas batted around during the 2008 presidential race."--U.S. News & World Report

"As Jacob Hacker argues persuasively in The Great Risk Shift, America's middle class finds itself living with far more risk and income volatility than it did a generation ago." --Christopher Hayes, The Nation

"Hacker's important and illuminating book--with its call for creating an insurance and opportunity society--should inform every discussion of progressive political strategy in the coming decade."--David Moberg, In These Times

"Jacob S. Hacker, a 35-year-old political science professor at Yale, has become something of an intellectual 'It boy' in the Democratic Party over the last decade...The patchwork safety net created in the decades after World War II truly is shriveling, and there will be rewards for the party that comes up with a convincing solution. Hacker has done the Democrats a favor by developing a story and a catchphrase--the great risk shift--to describe the problem."--David Leonhardt, New York Times

"In cutting-edge polemics like Jacob Hacker's The Great Risk Shift, the smartest liberal voices are focusing on voter anxiety about health care and income volatility--anxiety that the GOP hasn't even begun to find a way to address."--Ross Douthat & Reihan Salam, The Weekly Standard

"Democrats don't really have an answer to the economic anxieties of the middle class. They don't quite know how to deal with the complicated mix of optimism and anxiety that characterizes even the upper-middle class in today's economy. They know that the old language of economic security from risk doesn't stand up against the slogans of opportunity and ownership that the right offers, even though those you're-on-your-own policies make matters worse. There is a healthy debate going on in liberal intellectual circles about this. The best answer so far can be found in Jacob Hacker's new book, The Great Risk Shift, in which he proposes that we think of security as the basis for economic opportunity. However, this idea doesn't yet seem to have entered the consciousness of the political class."--Washington Monthly

"The essential policy book of the year."--E.J. Dionne, Washington Post

"An intellectual handbook for many on the left."--The Economist

"One of the two most important books on American politics to appear this year, maybe in many a year.... Hacker's is one of those prescient books that names and anatomizes a potent, ubiquitous trend that has been hidden in plain view.... His book deserves the widest possible audience, for having nailed the most powerful and underappreciated economic trend of our era, thereby inviting a discussion of the political opportunities."--Robert Kuttner, American Prospect

"A valuable new book...he presents data explaining the new sense of economic dread hanging over Americans. We all know that in this globalized, ultracompetitive age, job security has been beggared, but Hacker attaches startling numbers to the national anxiety."--New York Magazine

"His most ambitious work yet."--The New York Times Book Review

"Within a unified thesis, Mr. Hacker tells a coherent story about economic insecurity. And, by and large, the thesis is compelling...his account is provocative and worth reading."--Roger Lowenstein, The New York Times

"Provides a fresh diagnosis of a familiar complex of problems from structural unemployment to the erosion of retirement plans you can retire on."--The Atlantic

"A powerful and timely account of the forces driving the ascendance of economic insecurity in America. But Hacker does more than describe the problem; he offers a thoughtful and ambitious policy agenda and explains how each of us can make our own families more secure. This is an important book for anyone concerned about the continuing vitality of the American dream."--John Edwards, former U.S. Senator and Director, Center on Poverty, Work, and Opportunity at UNC Chapel Hill

"America's largest social class isn't upper-income, middle, or poor. It's our sprawling anxious class. As Jacob Hacker shows in this lucid and riveting account, American families are experiencing more and more uncertainty about their future, and the reigning conservative orthodoxy is exposing them to ever greater risk. Hacker lifts up the floor boards of conservative's much touted 'ownership society' and reveals the extended rot. But he also offers up a new foundation for economic security. This is an important book."--Robert B. Reich, Professor of Public Policy, University of California at Berkeley, and former U.S. Secretary of Labor

"What Hacker so effectively documents in The Great Risk Shift is that for too many Americans, Washington's pursuit of a so-called Personal Opportunity Society has instead brought about deepening economic insecurity. From job tenure and health coverage to retirement planning, corporations and governments are offloading longstanding institutional responsibilities onto the fragile psychologies and balance sheets of ordinary families and households. Small wonder the public doesn't trust the national economy and its circumstances."--Kevin Phillips, author of American Theocracy

"Hacker urges shared risk and responsibility. He builds on the best examples of efficient, high-quality coverage today: the employer-provided health insurance received in large (and high-wage) firms, and Medicare. His plan, now called Health Care for America, preserves the ability of private insurers to compete while ensuring a safety net for all Americans...Hacker's is an ambitious plan that has a good chance of making the transition from today's piecemeal approach to universal, rational coverage with the least disruption."--Chronicle of Higher Education

"Hacker shows that the decline in economic security is the major economic issue of our time, far more important than the occasional recessions and blips in the unemployment rate that preoccupy so many economists. This book powerfully illuminates the real scope of the problem."--Robert J. Shiller, author of Irrational Exuberance

"Most Americans today are on an unstable financial footing. Could this become the next hotbutton political issue?...Hacker characterizes economic insecurity as 'the defining feature of the contemporary American economy,' and his book provides a fresh diagnosis of a familiar complex of problems from structural unemployment to the erosion of retirement plans you can retire on."--The Atlantic Online

"Hacker seeks to call attention to another alleged failing of the new, more market-oriented economy: rising levels of risk and insecurity...he advances some interesting proposals... deserving of serious debate."--Wall Street Journal

"Risk aversion is why Americans are so nervous about the economy: As much as we prize stability, we find ourselves up to our necks in risk...income stability has fallen dramatically in the United States in the last 30 years. The likelihood that Americans will see drastic changes in income from one year to the next is three times higher now than it was in the early 1970s."--St. Louis Post Dispatch

About the Author

Jacob S. Hacker is Professor of Political Science at Yale University and Fellow at the New America Foundation. He is author of The Divided Welfare State and The Road to Nowhere and, and most recently, co-author of Off Center: The Republican Revolution and the Erosion of American Democracy. A frequent commentator on NPR, PBS, and CNN, Hacker has written for The New Republic, The Nation, The New York Times, The Los Angeles Times, The Washington Post, and other publications.

Product Details

• Paperback: 272 pages
• Publisher: Oxford University Press, USA; Rev Upd edition (January 17, 2008)
• Language: English
• ISBN-10: 0195335341
• ISBN-13: 978-0195335347
• Product Dimensions: 6.2 x 0.7 x 9.3 inches
• Shipping Weight: 8.8 ounces (View shipping rates and policies)
• Average Customer Review: 2.4 out of 5 stars  See all reviews (5 customer reviews)
• Amazon Best Sellers Rank: #470,559 in Books (See Top 100 in Books)
  • #30 in Books > Politics & Social Sciences > Politics & Government > Public Affairs & Policy > Social Security
  • #66 in Books > Health, Fitness & Dieting > Aging > Medical Conditions & Diseases

Most Helpful Customer Reviews

12 of 13 people found the following review helpful

5.0 out of 5 stars A cautious analysis of the present and a red flag warning of what needs to be done February 5, 2008

By Midwest Book Review

Format:Paperback

Now in a newly revised and expanded edition, The Great Risk Shift: The New Economic Insecurity and the American Dream is a no-nonsense deconstruction of how current American policy has been systematically shifting economic risk from government and businesses onto the backs of individual people. Health coverage has become increasingly expensive and difficult to obtain; social security is relentlessly under attack; job security is a thing of the past; and some of the greatest risks and investments - such as years of expensive college training to prepare for a specific career - can be thoroughly upended with a shift in the labor market. The overused mantra of 'personal responsibility' is all too easily twisted into 'tough cookies for you if your child gets sick and needs expensive hospitalization.' Personal anecdotes are sprinkled throughout, yet the core of The Great Risk Shift is a big-picture analysis supported by the latest statistical trends. From the need to return insurance to its original purpose - protecting the individuals who most need it against catastrophic loss - to the pitfalls of a so-called 'ownership society', The Great Risk Shift is both a cautious analysis of the present and a red flag warning of what needs to be done in the immediate future to fight back against specific policies that are demonstrably harmful to society as a whole. Highly recommended.

6 of 13 people found the following review helpful

2.0 out of 5 stars False premises yield false conclusions... July 8, 2010

By M. Harrington

Format:Paperback

...perpetuating popular myths. The first myth is that social insurance is the most efficient and desirable means to manage the risks of an uncertain and constantly changing world. The second myth is that anyone who recognizes this and disagrees is complicit with some Personal Responsibility Crusade out to fleece the poor and middle class. (Makes for a good liberal-left narrative, but it's mostly false.) The third myth is that this PRC has engineered the Great Risk Shift and deliberately advanced our economic volatility. Every story needs a good villain.

But let me start by commending Mr. Hacker's focus on risk as the most salient factor in our politics and policies. As evidenced by studies in the behavioral social sciences, such as those advanced by Kahneman and Tversky, we find that loss aversion, not utility maximization, is the primary determinant of economic preferences. This helps explain our crisis-driven politics, as well as the evolution of such socio-economic institutions as families, city-states, unions, and the social welfare state. And insurance is certainly the key to managing risks.

However, beyond this observation of how change has affected risk burdens in a free market society, Mr. Hacker offers only a political polemic that appears primarily ideological (i.e., we need a New New Deal). There's nothing wrong with this--one can agree or disagree and the reviews seem to reflect this. But Hacker's true errors are empirical and theoretical. He appears to lack the technical tools to understand risk theory and has also failed to correctly understand the historical evolution of social insurance from the mid-19th century to the present.

Social insurance did not arrive with FDR's New Deal, rather it developed in the private sector 100 years earlier in response to the vicissitudes of industrialization, specialization, and trade. In 19th century England, risk-sharing arose through Friendly Societies and Guilds where members would contribute to a community fund to alleviate income loss due to accidents or unemployment related to trade fluctuations. (Communal funds go back to Renaissance Italy.)

State-provided social insurance was introduced in Germany with the policies of Bismarck, Germany's "Iron Chancellor." His comprehensive program of social insurance programs--including unemployment insurance, old-age pensions, health insurance, workers' compensation, and workplace health and safety regulations--was, by his own admission, a political calculation to "bribe the working classes" and maintain political support for the kaiser.

Social insurance was soon recast by social reformers crusading for a compassionate welfare state. The modern liberal narrative claims these programs were engineered by trade unions and left labor parties to succor the working classes. In actuality, a cross-national case study comparison of OECD countries reveals that international manufacturers and resource exporters had greater political influence in fostering national unemployment insurance and related programs. Trading industries favored the cross-subsidization of labor compensation schemes that primarily benefited their industries' shares of national wealth.

The point of recounting history is to illuminate the underlying economic and political logic of national social insurance. The logic was not income redistribution, as that would not have attracted the support of capitalists or elites. Rather, these schemes promoted national savings pools to manage the ups and downs of trade over time. It is less about moral compassion and national solidarity than it is about effectual risk management. In addition, Bismarckian social insurance was true social insurance, where contributions and benefits were rationalized according to actuarial statistics. US Social Security and Medicare are nothing of the sort; instead they are pay-as-you-go transfer schemes - a completely different animal.

Mr. Hacker's disregard for this history and logic leads him to assume social insurance (and he mischaracterizes both Social Security and Medicare as such) is a necessary social or public good to manage the changes wrought by a free market economy. There are risks where social insurance is necessary--where private insurance markets are incomplete or untenable--but the risk issues he identifies--jobs, families, retirement and health care--are all managed by private insurance provided in abundance through the private sector. The distortion of these markets through political intervention and control does not prove these markets have failed - on the contrary, the socialization of risk has failed.

Risk and uncertainty are not new concepts and they have been managed by every living species since time began, guided by the survival instinct. Nature seeks diversity and decentralization. We humans have been following this simple formula for millennia: work hard, have a family, accumulate resources, and save for a rainy day. If one is lucky these resources, or assets, can be passed down through generations and provide security as a birthright.

Let's compare this to social insurance: taxed contributions with no liquidity until old age, insuring dependence on demographics and arbitrary machine politics, with no legacy to leave to one's heirs. This doesn't sound like a wise risk trade-off to me, demonstrating why it's a mistake to socialize risk where it can be more effectively managed privately. More seriously, the moral hazard costs can be devastating, as our exploding deficits sadly demonstrate. For a good test case we have Chile, which privatized its social insurance programs in the 1980s. Right now Chile's public debt is 9% of GDP vs. 80% and rising in the US.

Mr. Hacker's real villain in this crusade is the misuse of power by the corporate and political elites to socialize risk while privatizing rewards. The true crime is making bets of the "heads we win, tails you lose" variety, where taxpayers, shareholders and workers are left holding the losses. Political leaders of both parties can be held to task here--all those who abuse social programs for political patronage and directly benefit from In Goldman Sachs We Trust. Regulatory reform should focus on protecting those without power (shareholders, workers, taxpayers, investors) through open and competitive markets, which are much less vulnerable to regulatory capture. In other words, a competitive market is what drives down excess profits and economic rents and provides increasing value to consumers, not another bureaucratic regulatory agency or political watchdog. More important for risk, competitive markets constrain the concentration of power that fosters systemic risk, i.e., that "too big to fail" nonsense.

A second villain for Mr. Hacker should be the macroeconomic policy mismanagement of our political classes in the postwar period. Mr. Hacker is perhaps too young to remember the 1970s accurately. Anyone who touts this era as the golden age of economic security was not paying attention. The 70s was the worst decade of the past six in terms of income growth and wealth creation. It took the dismal 70s with the double-digit misery index to deliver us the Reagan Revolution. But it's the last 30 years of a Washington-Wall Street consensus of "GDP growth at any cost" that has given us the debt-leveraged economy with the most volatile asset price swings. Debt concentrates and amplifies risk. Thank you, Alan Greenspan, Ben Bernanke and Tim Geithner. Can you imagine how much income risk is being suffered by retirees and savers with a decade of artificially low interest rates? But this is a topic for a much different critique.

As far as Mr. Hacker's policy recommendations go, he favors the "we're all in the same boat" analogy. But negotiating a world of uncertainty is like navigating a sea of hidden icebergs, and Hacker chooses the Titanic metaphor. Better we are all in different boats on the same sea. In this respect, attacking HSAs, 401(k)s, ownership, etc. is completely misguided given our theoretical understanding of risk management and the available technologies of the 21st century. The most effective way to manage the uncertainty of change is through asset accumulation, decentralization and diversification (combined with the legal defense of property rights associated with these assets). This is why folk wisdom tells us to save for a rainy day and make sure somebody doesn't steal your gold. (That's gold, not dollars. Your dollars may be stolen by inflation.)

Tax policy on savings and capital assets that hit the poor and middle class is particularly onerous in this regard, as well as attempts to raise taxes to fund unsustainable one-size-fits-all social transfer schemes, as Mr. Hacker advocates. Well-intentioned leftist liberals may find this policy argument unappealing, but if one wants to discover the future of modern political liberalism, I would suggest a vacation in, say, Greece?

Finally, I find it disturbing to learn that Mr. Hacker has the ears of the administration and the Democratic Party leadership (though that may explain a lot, given their misguided policies). It's not what he doesn't know that worries me, but what he knows that just ain't so. And his exposition raises serious questions about the peer review process when it comes to ideological politics. Okay, this book is popular politics, not scholarship, but Mr. Hacker liberally uses his Yale cachet to sell.

I presume Mr. Hacker means well, so read The Great Risk Shift if you have the inclination, but only to learn what NOT to do. As a better alternative, I would recommend Martin Weitzman's The Share Economy or Robert Shiller's books on risk and macromarkets. A true classic is Peter Bernstein's Against the Gods: The Story of Risk.

5 of 12 people found the following review helpful

3.0 out of 5 stars Dangerously Prophetic with a Missing Conclusion September 21, 2008

By Library Picks Reviews TOP 1000 REVIEWER

Format:Paperback|Amazon Verified Purchase

Hacker is being touted as a prophet with the recent bail outs and Wall street woes with Lehman, AIG and the subprime fiasco: individuals CANT manage their own money after all, Hacker was right, yes? Hannah Arendt is turning over in her grave at two subtle miscues: reaction and received opinion.

Personal responsibility vs. totalitarian control comes down to one simple bad assumption: that government is any less corrupt or any more smart than Wall Steet. The Soviet economy collapsed (the first time) over a tripart deadly combination of excess military spending (with no related revenue stream), a central command economy with no price signals (the free market's central value in a global economy: no human "team" on earth can keep up with the speed or complexity) and, of course: corruption. Does anyone really believe that a roomful of bureaucrats in DC can manage any better than a roomful of traders on Wall Street?

Are they less stupid or less corrupt? The lynchpin is ethics in making any balance between individual responsibility for investment and government control and regulation work, and it's sadly lacking, and there are not enough resources in law enforcement or at OMB to police individual ethics, they have to come from within. Neither party has really talked in detail about interfacing risk sharing and safety nets with global trading and ethics, they, and Hacker, miss all three points of ethics, price signals, and excessive defense spending.

Reaction is the mother of all screw ups, whether in a marriage, or a social contract. Reaction to terrorism creates crazed defense spending. Reaction to simple markdowns to market creates trillion dollar bailouts. Reaction to bad individual investment choices creates huge new regulatory bureaucracies. This creates the insane pendulum that can't find the moderate balance, and the divisive conflicts between partisan policies.

Hacker, as a Clinton insider, has to take a position, and is being touted as "prophetic" with the 2008 corrections. Give him his due, but watch for the next catastrophe when the overreaction creates multi trillion dollar offices filled with government bureaucrats trying to play Wall Street gurus. A whole new generation of GS 11's is what will save us! Then, we will dig up the death-by-regulation Caterpillar Tractor quote from 1970 "When small men cast long shadows, it is a sure sign the sun is setting." The bad assumption in the coming reaction is that the GS crew will be any more ethical or competent than the greedy Streeters! Does anyone really believe that? BTW, who underwrites Hackers "Insured Society" -- Lloyd's, GE Reinsurance, or AIG? Sorry, Jacob, risk is there, and every solution involves shifting! You can't afford war, a welfare state AND a huge dept of govt. risk managers-- quality, service, price-- pick two. Sure, it's easy to say forget war: until Israel and Iran go at it, and the ancient dream of the Russian czars of a warm water port becomes a reality. If God were playing a chess game intended to relegate the U.S. to history, this latest pendulum swing would be a brilliant move.

Is this worth reading? Yes. Does it provide a balanced view? No. Does it miss a key conclusion? Absolutely: the assumptions of competence and ethics in big government are glaring, and the economic effects of regulation on businesses and resulting job creation are skimmed over. Look at the relationship of Siemens and the German government: shared assignments and interlocking jobs. Success? No, the global economy will have its way. What about Japanese companies with access to M1 creation and their own government banks? Nope, the global economy trumps them again. Look up the word PARASTATAL on Wikipedia. It is VERY well known in Europe and Japan, but very novel and unstudied here in the U.S. Both German and Japanese economic literature have a lot more reservations, and a lot more research, on the parastatal structure than we do in the US, but will that stop DC from launching right into it? Oh, wait, we just did...